Bill Gates Buys Liberty Global, CEMEX, and Comcast

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Aug 23, 2011
Bill Gates is widely known as the founder of Microsoft, growing it to become the largest software maker in the world and the dominant force in the PC world. He was the world's wealthiest person from 1995 to 2009. He co-founded the Bill & Melinda Gates Foundation, focused on enhancing healthcare and reducing extreme poverty globally as well as expanding educational opportunities in the U.S. The Bill & Melinda Gates Foundation Asset Trust is run by Michael Larson and manages the endowment assets that have not yet been distributed in order to maximize the return on investment. The Asset Trust works with private sector companies in order to collaborate against the global issues they are solving. In addition, Bill and Melinda guide the managers of the foundation's endowment in voting proxies to uphold the principles of good governance and good management. They consider a company's values in addition to its corporate profits, choosing to not invest in companies with business models that are tied to "egregious" corporate activity. According to the Asset Trust's second quarter portfolio update, it bought shares of Liberty Global (LBTYA, Financial)(LBTYK, Financial), CEMEX (CX, Financial), and Comcast (CMCSK, Financial).

Liberty Global Inc. (LBTYA)(LBTYK)

Gates purchased 2,119,515 shares of Liberty Global Series A at an average price of $43.8 3, impacting his portfolio by 0.63%. The price of the stock has since decreased 16%. Gates also purchased 706,507 shares of Liberty Global Series C at an average price of $41.92, impacting his portfolio by 0.2%. The price of the stock has since decreased 17%. Both stocks have been trending upwards in average price since 2009, nearly tripling their lows before coming back down.

Liberty Global, Inc. is a cable operator offering advanced video, voice and broadband internet services principally in Europe, Chile, and Australia. The Company offers video services through DTH or through multichannel multipoint (microwave) distribution systems (MMDS). It also provides voice-over-internet-protocol, telephony services, and circuit-switched telephony services. Liberty owns programming networks that distribute their services through a number of distribution technologies, principally cable television and DTH.

According to Liberty Global's second quarter report, revenue for the quarter was $2.62 billion, up 21% over last year. The increase in revenue was attributable to favorable foreign currency effects, organic growth, and impact of acquisitions, with subscription revenue increases making up most of the organic revenue growth. Adjusting for both foreign currency and acquisitions, revenue grew 4%, led by Chilean revenue growth of 6% and Western European revenue growth of 5%. Operating cash flow (OCF) increased 24% to $1.22 billion. In terms of rebased growth, OCF increased 8%, driven by volume growth and cost containment, especially in Western Europe. OCF margin increased to 46.8%, up 140 basis points over last year as the company pushes for operating leverage and economies of scale. Operating income grew 62% to $531 million in the quarter, due to higher revenue and improved operating and SGA expenses. However, net earnings were a $347 million loss, improving over last year's $684 million loss.

At quarter's end, Liberty Global's subscription base was 28.3 million revenue generating units (RGU) including 16.6 million video, 6.8 million broadband internet, and 4.9 million telephony services provided to 17.6 million unique customers. RGU base increased 4% year-over-year, up from 27.3 million last year, due to organic growth of 972,000 RGUs as well as small in-market acquisitions. During the quarter, Liberty Global added 235,000 RGUs, up 39% over last year, driven by growth in Germany and Chile. The company lost 75,000 in video subscribers but gained 216,000 digital cable subscribers, increasing digital penetration to 48%, up from last year's 40% digital penetration. The company's triple-play offers have also increased combined telephony and broadband subscriber additions, with telephony RGUs increasing 156,000 in the quarter, up 24% over last year, and broadband internet RGUs increasing 154,000 in the quarter, comparable to 152,000 last year. In the past twelve months, more than 550,000 customers have become triple-play subscribers, and the company continue to promote its triple-play bundle.

During the quarter, the company spent $508 million on capital expenditures, which included spending on the Chilean 4G project. Free cash flow was $135 million, up from last year's loss of $49 million in free cash flow, and adjusted free cash flow was $165 million, up 95% over last year's adjusted free cash flow of $85 million. The company also sold AUSTAR, its Australian pay-TV business, for $2.1 billion, with gross proceeds expected to total $1.1 billion. It is also working on its KBW transaction in Germany.

Liberty Global Series A has a market cap of $10.0 billion. Its P/E ratio is 25.9, with a P/S ratio of 1.1 and a P/B ratio of 2.5. Its Global Series C stock has a market cap of $9.6 billion. Its P/E ratio is 24.9, with a P/S ratio of 1.0 and a P/B ratio of 2.4. The company has a high debt-to-equity ratio of 5.5, though operating margin has been generally increasing since the company went public in 2005.

CEMEX, S.A.B. de C.V. (CX)

Gates purchased 5,813,953 shares of CEMEX at an average price of $8.35, impacting his portfolio by 0.33%. The price has since decreased by 40%. CEMEX is one of the largest cement companies in the world, with close to 78 million metric tons of production capacity. Through operating subsidiaries in four continents, they are engaged in the production, distribution, marketing, and sale of cement, ready-mix concrete, aggregates, and clinker. They are also the world's leading producer of white cement and the world's largest trader of cement and clinker.

According to CEMEX's second quarter report, consolidated net sales for the quarter were $4.09 billion, up 9% over last year though flat when adjusted for currency and investments/divestments. Higher sales in terms of local currency in Northern Europe, South/Central America, and the Caribbean helped drive consolidated net sales. Cost of sales as a percentage of net sales increased 1.8 percentage points due to higher fuel cost and maintenance in cement operations, though SG&A expenses decreased 0.3 percentage points due to cost reduction initiatives. Net income was a loss of $294 million, improving over last year's loss of $306 million. The loss was a result of lower operating income, higher net other expenses from severance payments and amortization of fees, and higher financial expenses.

Among the company's different operating segments, Mexican gray cement volumes increased 3%, ready-mix volumes increased 13%, and aggregates increased 3% due to the infrastructure and industrial-and-commercial sectors offsetting declines in formal housing investment and a stagnant self-construction sector. U.S. gray cement volumes decreased 10%, ready-mix volumes decreased 14%, and aggregates decreased 12% due to higher prior year sales from expiring residential subsidies, weak employment and tight credit affecting the residential sector, and uncertainty surrounding the Federal Highway Program affecting the infrastructure sector.

In Northern Europe, domestic gray cement volumes increased 7%, ready-mix volumes increased 8%, and aggregates increased 3% with different catalysts emerging in different countries due to infrastructure work projects and residential sector growth. In the Mediterranean, gray cement volumes decreased 5%, ready-mix volumes decreased 3%, and aggregates decreased 8% due to lower construction activity and stagnant housing construction in Spain offsetting flat volumes in Egypt. In South/Central America and the Caribbean, gray cement volumes increased 3%, ready-mix volumes increased 23%, and aggregates increased 25% due to low-and-middle income housing developments supported by low unemployment. In Asia, gray cement decreased volume by 12%, ready-mix volumes decreased 11%, and aggregates decreased 8% due to government suspension of key infrastructure projects in the Philippines.

CEMEX has a market cap of $5.26 billion. Its P/S ratio is 0.37, below its seven-year average. Its P/B ratio is 0.31, near its seven-year low. The company has no long-term debt on its balance sheet, but it has had net losses in each of its last seven quarters.

Comcast Corp. (CMCSK)

Gates purchased 944,550 shares of Comcast Corp. Class A Special at an average price of $23.34, impacting his portfolio by 0.15%. The price has since decreased by 15%. Comcast Corporation, provides consumer entertainment, information, and communication products and services to the residential and commercial customers in the United States. The company operates in two segments, Cable and Programming.

According to Comcast's second quarter results, consolidated revenue was $14.3 billion, up 50.5% from last year's $9.5 billion, largely due to the consolidation of NBCUniversal effective January 28, 2011. When including NBCUniversal's effects in last year's performance, consolidated revenue increased 9.4%. Operating income was $2.9 billion, up 41.4% from last year's $2.1 billion due revenue growth and the consolidation of NBCUniversal. Earnings per share were $0.37, up 19.4% over last year's $0.31. Excluding NBCUniversal transaction costs and a $137 income tax charge due to state tax law changes, EPS increased from 27.3% from $0.33 to $0.42.

Cable Communications results saw revenue increase 5.6%, from $8.8 billion last year to $8.3 billion. This was due to a 10.3% increase in high-speed internet revenue and a 41.7% increase in the business services revenue. Cable operating cash flow increased 6.8%, from $3.6 billion to $3.9 billion, as a result of continued operational efficiencies partially offset by increases in video programming and marketing expenses. Capital expenditures increased 5.5% to $1.2 billion due to increased investment in network infrastructure and increased investment to support expansion in business services. Combined video, high-speed internet, and voice customers increased by 99,000 in the quarter, an 18.2% increased over last year's net additions. In the past twelve months, video, high-speed internet, and voice customers increased 1.4 million.

Revenue for NBCUniversal increased 17.1% to $5.2 billion, up from last year's $4.4 billion. Revenues for Cable Networks increased 12.6% to $2.2 billion due to a 10.3% increase in distribution revenue, a 10.3% increase in advertising revenue, and a 44.0% increase in other revenue including increases in licensing of owned content from the cable production studio. Broadcast Television revenue increased 18.5% to $1.7 billion due to higher advertising revenue from improved pricing and ratings as well as higher content licensing revenue. filmed Entertainment revenue increased 21.0% to $1.3 billion due to strong box office performances by Fast Five and Bridesmaids, partially offset by lower content licensing and home entertainment revenue.

Comcast has a market cap of $57.4 billion. The stock trades with a P/E ratio of 14.4, below its ten-year average. Its P/S ratio is 1.5, also below its ten-year average. Its P/B ratio is 1.2, below its ten-year average as well. Both quarterly sales per share as well as book value per share spiked up as a result of the NBCUniversal acquisition. The debt-to-equity ratio for the company is at .843.

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